Do high interest rates defend currencies during speculative attacks?:new evidence

Goderis, Benedikt and Ioannidou, Vasso P. (2008) Do high interest rates defend currencies during speculative attacks?:new evidence. Journal of International Economics, 74 (1). pp. 158-169. ISSN 0022-1996

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Abstract

Kraay [Kraay, A., 2003. Do high interest rates defend currencies during speculative attacks? Journal of International Economics 59, 297-321.] documents the lack of any systematic association between monetary policy and the outcome of a speculative attack. This paper revisits Kraay's work and modifies it by introducing an improved measure of monetary policy and an additional country-specific fundamental, short-term corporate debt, to capture balance sheet vulnerabilities emphasized by the recent currency crises literature. The results show that for low levels of short-term corporate debt, raising interest rates lowers the probability of a successful attack. This effect decreases and eventually reverses for higher levels of debt. These findings contrast earlier empirical evidence and imply a fundamental reconsideration of the role of monetary policy during currency crises.

Item Type:
Journal Article
Journal or Publication Title:
Journal of International Economics
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/2000/2002
Subjects:
ID Code:
64510
Deposited By:
Deposited On:
15 May 2013 08:26
Refereed?:
Yes
Published?:
Published
Last Modified:
29 Jan 2020 07:36